Bernanke: China faces risks as it aims for reserve status for yuan

Chris Papadopoullos was City A.M.'s economics reporter until February 2016.

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Chris Papadopoullos

Former Fed chief Ben Bernanke

THE FORMER chairman of the Federal Reserve has warned that China needs to have deep and liquid financial markets if it wants to loosen rules on trading in its currency.

“For a currency to be internationally traded, what you need most is liquid markets,” Ben Bernanke told an audience in Shanghai yesterday. “A deep market means people can get their money out.”

Chinese officials want the International Monetary Fund (to add the yuan to its group of reserve currencies, which currently includes euros, dollars, yen and sterling. But to do this, China must open up its heavily regulated financial markets. Bernanke played down the economic relevance of becoming a reserve currency, saying it was “mainly symbolic”.

But some economists believe that China’s desire to have the yuan granted reserve status prevents it from devaluing its currency. Some devaluation to boost growth is expected by analysts now that growth has slowed to 2009 levels.